Markets are extremely difficult, to time, predict, and to generally know what’s going on. This makes intentional strategic investing hard for a lot of people.
Take this chart right below. Most people investing for themselves are going to find themselves investing with the public. You will see a stock get televised on CNBC and Jim Cramer says, “this stock is a screaming buy”. You go in and say, “sweet okay I will include that one in my portfolio.” That stock climbs 50% in a matter of weeks and you say, “this is great, how could I lose”. You just passed enthusiasm, greed, and delusion all at once. Now the media has stated things like “X stock is going to be the next Apple!” The new paradigm. That all unravels when the smart and institutional money start taking their gains because they’ve seen this chart 1,000 times over. They start the selling that sends the market lower, then part of the public can’t handle the volatility so they sell - sending the market lower - until you are left with the bare bones and people capitulate and sell out completely. In this chart, the only people that make money are the smart and institutional investors.
Here’s what is hard for most people, which is why I want to highlight it first. Sometimes smart money only happens in private markets, not the stock market, sometimes smart money can follow public money.
A shining example of private market smart money is Peloton. Peloton IPO in the fall of 2019 right before covid. As the at-home gym company shares of Peloton surged over 400%, the smart money that had bought in before it had IPO saw the performance and started taking gains. That coupled with some mismanagement, macroeconomic headwinds - mainly from the return to normal, and missed opportunities sent Peloton stock into a bout of selling that lead it to where it is today, off over 70% from its highs. The smart money no doubt made out good on this trade, but the retail public did not.
So the solution - and most people aren’t going to like this - is talking to someone that has institutional resources, i.e. a financial advisor.
I work as a Capital Markets Analyst for a wealth management firm in Fargo North Dakota, Fjell Capital. You might think we don’t have access to institutional information, but we/I do.
I work with some of the largest investment banks and global asset management companies out there. Goldman Sachs, JP Morgan, Blackrock, Capital Group, Vanguard, USAA, T. Rowe Price, Wisdom Tree, and the list goes on.
Every week my connections at these firms let me know what their portfolio managers are doing and what is going on in the markets.
I also have access to institutional research through Goldman Sachs and JP Morgan where I can find exactly which strategies other advisors, people, and institutions are using and where they are putting their money.
This is the part that sucks, none of that information can be given to the general public and they wouldn’t want to anyways.
Here is another destroyer of wealth. I’ve seen hundreds of balance sheets and the most common mistake is concentration. The concentration of a market, sector, or stock. Either people put all of their eggs in the US markets, one sector, or one stock.
Don’t get me wrong it can be a really fast way to grow your wealth, but easy come easy go. Just take Bitcoin for example. A concentrated Bitcoin position wouldn’t have served you very well.
One of the simplest ways to combat this is to benchmark yourself. A very boring concept, but necessary. I benchmark our models to Blackrock’s model portfolios, but you won’t have access to those. What I would suggest is benchmarking to the Vanguard total world index, and if you need/want bonds create a mixture of the Bloomberg Aggregate Bond Index and the total world index.
That allows you to see how you are positioned in each sector and market - the US or otherwise - so you can best position yourself for long-term success.
That doesn’t take away all of the possibilities for concentration though. You could still only have Google for your communication sector, only Apple for your tech sector, and only John Deere for your industrial sector. These are all great companies but they shouldn't be your only positions to create a diversified portfolio. The industrial sector may survive forever but John Deere might not. By removing the risk of solely John Deere failing you are removing the risk in your own financial life.
For smaller pools of money, index funds can be a great way to get diversified while still being able to make bets on the side.
This is important, it’s a lot easier to capitulate when you don’t follow the first two things. In the market, capitulation happens when people throw in the towel and sell everything. This is usually the last bit of selling that occurs in a bear market. Holding through the volatility will make you a millionaire, trust me on that.
“You make most of your money in a bear market you just don’t know it at the time.” - Warren Buffett
Most of us reading this are earning income. This is the perfect time to be saving more and buying the right financial assets. Buying in a bear market propels your money forward in time. When people say, “The S&P 500 is back to 2019 levels” that means getting in now somewhat means you got in 2019 but actually in 2022. Those three years are going to help you in the long run.
If you don’t know what you should do, talk to me I can and will help.
So here are your three steps to doing this well:
This will make you a multimillionaire by the time you are retired if you plan well.
So all of that was first and second-level investing, which alone will get you where you want to go. It’s not flashy or really fun but it will get it done.
But here is third-level investing.
This is where you are making smart bets on outcomes, this is also where things get incredibly complex.
I am going to tell you a story of the third-level investment I personally made in 2022.
In January markets started falling, they fell until they hit a low in June, then the market went into a bear market rally until August before it fell to new lows to get to where we are today.
Sometime between March and June, I started a position in Goldman Sachs because I know how Goldman Sachs operates. They had been hit hard because all of 2021 they were making money hand over fist in the investment banking business, with all of the new IPOs and SPACs.
That changed when the market took a turn. They fell, along with the other investment banks, quite substantially. But the upside to this trade was that markets have historically rebounded in every bear market. So I knew that Goldman's other business was asset management, they were going to hit that market hard to generate earnings they couldn't get from the investment banking business anymore.
That revenue generated from asset management would only increase as the market rebounds and once the market hits new highs IPO and SPAC volumes would rebound with it.
Goldman Sachs would have a larger asset management base and do the same amount of investment banking post-bear market, thus increasing earnings potential.
At the same time companies that aren’t going public - private and startup companies - were holding off because their valuations are down and didn’t want to dilute themselves or their shareholders, so they were burning through the cash that they had previously raised. I actually wrote a post about that as well.
This meant that private equity and venture capital investors had to be sitting on a ton of cash, or dry powder as we would call it. That dry powder is just waiting to get deployed. When it does it will land on Silicon Valley Bank’s balance sheet as new depositors raise money, and companies like Blackstone will benefit as they are the ones making investments in the companies that Goldman Sachs will eventually make a ton of money on along with Blackstone and Silicon Valley Bank as the money starts flowing again.
So this is what I would call a bet on a bet. Blackstone has to make the investments that land in Silicon Valley Bank so the companies can grow, so they can IPO with Goldman Sachs in one to two years, but in the meantime Goldman Sachs has an earnings plan to boost them during the IPO downtime.
Hopefully that all made sense.
But this feeds into the previous points as well. If you looked at my balance sheet you wouldn’t see only Blackstone, Silicon Valley Bank, and Goldman Sachs. You would see a diversified portfolio. I could totally be wrong on this and lose my investment here, so I don’t want to bet it all, only some hedge funds do that, and I am not a hedge fund. This is a bet outside of my long-term plan.
This is what I do on a daily basis, I help people become what they want to become with their money, if that is you reach out to me and I’d be happy to help.1
This communication is not a recommendation or endorsement of any product, service, or issuer. Posts do not reflect the views of Fjell Capital, Sanctuary Securities, Inc. or Sanctuary Advisors, LLC, and have not been reviewed for completeness and accuracy. All further communications from this representative must be sent from and received by firstname.lastname@example.org. For additional information, please refer to one of the following consumer websites: www.FINRA.org, www.SIPC.org.